Bulk Execution Problem
(the following graph is one of several reflecting different rates and products, updated daily and posted to the MCM website for client viewing)
Why is this happening? The primary reason is that correspondent investors price their bulk bids based on the TBA prices they will receive from custom pools and pools stipulated with certain features like new production and low loan balance. These stips provide them with a much higher value for their securities compared to the pricing on any TBA screen. Also, LLPA adjustments like high balance were previously watered down and are now being charged at full cost. In addition, they forecast higher losses and cash flow requirements as a result of increased servicing costs and have widened margins to offset increased risk and higher hedging costs. Furthermore, many investors have reached maximum capacity given the avalanche of refinancing pipelines coming to market. This all combines to generate significantly lower bulk bids or no bids in many cases, as firms are strapped for cash.
In addition to lower bulk pricing levels, we have seen lower securitized and cash pricing levels versus TBA security pricing. All not good to your mark levels….
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